Gst personal

Goods and Service Tax
(GST)
CA. Atul Kumar Gupta
1

 Present and Proposed Scheme of Indirect Taxation
 GST –Benefits and Challenges
 Challenges in GST – Lesson from Present System
 Road to GST - Milestones
 Industry’ Expectations from GST
 Features of Proposed GST
 Illustration to Showcase Tax Benefit under GST
 Features of Constitution Amendment Bill
 IGST Model
 Features of Place of Supply Rules
 International Perspective in GST
 GST Planning
2
Presentation Plan

Present Tax
Structure
[5 Important
Constituents]
Excise Duty
Entry No. 84,
List I, Schedule
VII
Taxable Event is
Manufacture
Service Tax
Residuary Entry
No. 97, List I,
Schedule VII
Taxable Event is
Provision of
Service
Sales Tax /
VAT/ CST
Entry No. 54 of
List II (VAT) and
92A of List I
(CST)
Taxable Event is
Sale
Customs
Duty
Entry No. 83,
List I, Schedule
VII
Taxable Event is
Import & Export
Entry Tax/
Entertainme
nt Tax
Entry No. 52 &62
List II, Schedule
VII
Taxable Event is
Entertainment &
Entry of Goods
3
Present Indirect Tax Structure of India

Intra State
Taxable Supply
Excise and Service
Tax will be known as
CGST
Local VAT & Other
taxes will be known
as SGST
Inter State
Taxable Supply
CST will be replaced
by Integrated GST
(IGST)
Approx. Sum Total of
CGST and SGST
Import From
Outside India
Custom Duty
In Place of CVD and
SAD, IGST will be
charged
4
Proposed Indirect Tax Structure

• Reduction in multiplicity of taxes.
• Mitigation of cascading/ double taxation.
• More efficient neutralization of taxes especially for exports.
• Development of common national market.
• Simpler tax regime -
 Fewer rates and exemptions.
 Conceptual clarity (Goods vs. Services).
5
Benefits to Assessee

 Simpler Tax system.
 Broadening of Tax base.
 Improved compliance & revenue collections (tax booster).
 Efficient use of resources.
6
Benefits to Exchequer/Govt.

 Legacy issues which will use resources
 Non Harmonization of Tax rates
 Lack of automation
 Lack of Procedural Manuals
 Lack of Skilled officials
 Double Registration- Handling old Registration
 Poor Quality of tax Returns
 No System for 100% Scrutiny of Tax Returns and Tax Audit
 Lack of Cross Verifications with other tax administrations
 Lack of mechanism to control Evasion
 Impact on Prices
7
Challenges in GST- Lesson from Present System

 Low compliance cost
 Simple business processes
 Less requirement of automation initially
 Minimal ITC refund cases
 Exemptions instead of exclusions from GST
 Seamless flow of input credit
 Seamless flow of information between, supplier, buyer and tax administration
 Need for IT portal or agency like TINXSYS, NSDL
8
Industry’ Expectations from GST

 Automation of process by way of e-registrations, e-returns, e-payment
 No requirement of verifications during inter state movement of Goods
 Zero rating of supplies to exporters
 Administrative efficiency in case of assessment and adjudication
 Ease of compliance
 Self-policing
9
Industry’ Expectations from GST

FEATURES OF PROPOSED GST
MODEL
10

Features of Proposed GST
 Destination based Taxation
 Apply to all stages of the value chain
 Apply to all taxable supplies of goods or services (as against manufacture, sale or provision of
service) made for a consideration except –
o Exempted goods or services – common list for CGST & SGST
o Goods or services outside the purview of GST
o Transactions below threshold limits
 Dual GST having two concurrent components –
o Central GST levied and collected by the Centre
o State GST levied and collected by the States
11

Features of Proposed GST contd.
 CGST and SGST on intra-State supplies of goods or services in India.
 IGST (Integrated GST) on inter-State supplies of goods or services in India – levied and collected
by the Centre.
 IGST applicable to
o Import of goods and services
o Inter-state stock transfers of goods and services
 Export of goods and services – Zero rated.
 Additional Tax of 1% on Inter State Taxable supply of Goods by State of Origin and non
CENVATABLE
12

 All goods or services likely to be covered under GST except :
o Alcohol for human consumption - State Excise plus VAT
o Electricity - Electricity Duty
o Real Estate - Stamp Duty plus Property Taxes
o Petroleum Products (to be brought under GST from date to be notified on
recommendation of GST Council)
 Tobacco Products under GST with Central Excise duty.
13

14
Central Taxes to Subsumed
 Central Excise duty
(CENVAT)
 Additional duties of excise
 Excise duty levied under
Medicinal & Toiletries
Preparation Act
 Additional duties of
(CVD & SAD)
 Service Tax
 Surcharges & Cess
State Taxes to subsumed
 State VAT / Sales Tax
 Central Sales Tax
 Purchase Tax
 Entertainment Tax (not
levied by the local bodies)
 Luxury Tax
 Entry Tax ( All forms)
 Taxes on lottery, betting &
gambling
 Surcharges & Cess
Taxes to be subsumed

 GST Rates – to be based on RNR – Four rates
 Merit rate for essential goods and services
 Standard rate for goods and services in general
 Special rate for precious metals
 NIL rate
 Floor rate with a small band of rates for standard rated goods or services for SGST
 This is similar to mandatory guidelines which will be issued by GST Council in line with
European Directive 12/2006
 Optional Threshold exemption in both components of GST.
 Optional Compounding scheme for taxpayers having taxable turnover up to a certain
threshold above the exemption.
 HSN Code likely to be used for classification of goods.
 Present Accounting codes likely to be used for Services.
15

Illustration to Showcase Tax
Benefit under GST
16

Present Scenario (Intra-State Trade of Goods)
CA. Atul Kumar Gupta 17
Input Manufacturer Output Manufacturer Dealer Consumer
State Tax = 13.31
( 11 + 1.10 + 1.21)
VAT = 11
VAT = 12.10
ITC = ( 11)
1.10
VAT = 13.31
ITC = ( 12.10)
1.21
Excise = 10
Excise = 11
ITC = (10)
1
Tax Invoice (A)
Value = 100
Excise = 10
VAT = 11
121
Tax Invoice (B)
Cost = 100
Value = 110
Excise = 11
VAT = 12.10
133.10
Tax Invoice (C)
Cost = 121
Value = 133.10
VAT = 13.31
146.41
Central Tax = 11
( 10 + 1)

GST Scenario (Intra-State Trade of Goods)
State Tax = 12.10
( 10 + 1 + 1.10)
SGST = 10
SGST = 11
ITC = ( 10)
1
SGST = 12.10
ITC = ( 11)
1.10
CGST = 10
CGST = 11
ITC = (10)
1
Tax Invoice (A)
Value = 100
CGST = 10
SGST = 10
120
Tax Invoice (B)
Cost = 100
Value = 110
CGST = 11
SGST = 11
132
Tax Invoice (C)
Cost = 110
Value = 121
CGST = 12.10
SGST = 12.10
145.20
Central Tax = 12.10
( 10 + 1 + 1.10)
CGST = 12.10
ITC = (11)
1.10

Present Scenario (Inter-State Trade of Goods)
State Tax (Y) = 16.91
( 13.91 + 3)
VAT = 11
CST = 2.42
ITC = ( 2.42)
0
VAT = 13.91
Excise = 10
Excise = 11
ITC = (10)
1
Tax Invoice (A)
Value = 100
Excise = 10
VAT = 11
121
Tax Invoice (B)
Cost = 100
Value = 110
Excise = 11
CST = 2.42
123.42
Tax Invoice (C)
Cost = 126.42
Value = 139.06
VAT = 13.91
152.97
Central Tax = 11
( 10 + 1)
Entry Tax =
3
State Tax (X) = 11
- Refund Claim

GST Scenario (Inter-State Trade of Goods)
( 2.44 + 9.78**)
SGST = 10
SGST = 12.22
ITC = ( 9.78)
2.44
CGST = 10
IGST = 22
CGST = (10)
SGST = (10)
2
Tax Invoice (A)
Value = 100
CGST = 10
SGST = 10
120
Tax Invoice (B)
Cost = 100
Value = 110
IGST(20%) = 22
Add. Tax = 1.10
133.10
Tax Invoice (C)
Cost = 111.10
Value = 122.21
CGST = 12.22
SGST = 12.22
146.55
Central Tax = 12.22
( 10 + 2 + 10* - 9.78**)
Add. Tax =
1.10
State Tax (X) = 1.10
( 10 - 10* + 1.10)
CGST = 12.22
IGST = (12.22)
0

Present Scenario (Intra-State Trade of Service)
Input Service Provider Output Service Provider Consumer
Service Tax = 10
Service Tax = 11
ITC = (10)
1
Tax Invoice (A)
Value = 100
Service Tax = 10
= 110
Tax Invoice (B)
Cost = 100
Value = 110
Service Tax = 11
121
Central Tax = 11
( 10 + 1)

GST Scenario (Intra-State Trade of Service)
Input Service Provider Output Service Provider Consumer
CGST = 10
CGST = 11
ITC = (10)
1
Tax Invoice (A)
Value = 100
CGST = 10
SGST = 10
120
Tax Invoice (B)
Cost = 100
Value = 110
CGST = 11
SGST = 11
132
Central Tax = 11
( 10 + 1)
State Tax = 11
( 10 + 1)
SGST = 10
SGST = 11
ITC = ( 10)
1

Present Scenario (Inter-State Trade of Service)
State Tax (Y) = 0
Service Tax = 10
Service Tax = 11
ITC = (10)
1
Tax Invoice (A)
Value = 100
Service Tax = 10
110
Tax Invoice (B)
Cost = 100
Value = 110
Service Tax = 11
121
Tax Invoice (C)
Cost = 110
Value = 121
Service Tax = 12.10
133.10
Central Tax = 12.10
( 10 + 1 + 1.10)
Input Service Provider Output Service Provider Agent Consumer
State Tax (X) = 0
Service Tax = 12.10
ITC = (11)
1.10

GST Scenario (Inter-State Trade of Service)
( 2.20 + 9.90**)
SGST = 10
SGST = 12.10
ITC = ( 9.90)
2.20
CGST = 10
IGST = 22
CGST = (10)
SGST = (10)
2
Tax Invoice (A)
Value = 100
CGST = 10
SGST = 10
120
Tax Invoice (B)
Cost = 100
Value = 110
IGST(20%) = 22
132
Tax Invoice (C)
Cost = 110
Value = 121
CGST = 12.10
SGST = 12.10
145.20
Central Tax = 12.10
( 10 + 2 + 10* - 9.90**)
Input Service Provider Output Service Provider Agent Consumer
State Tax (X) = 0
( 10 - 10*)
CGST = 12.10
IGST = (12.10)
0

Comparison (Trade of Goods)
Sr. No. Particular Intra-State Inter-State
Present GST Present GST
1. Initial Value 121.00 120.00 121.00 120.00
2. Centre’s Tax 11.00 12.10 11.00 12.22
3. State (X)’s Tax 13.31 12.10 11.00 1.10
4. State (Y)’s Tax - - 16.91 12.22
5. State’s Total 13.31 12.10 27.91 13.32
6. Total Tax paid to Govt. 24.31 24.20 38.91 –
Refund Claim
25.54
7. Non-Vatable Tax borne by
Business
11.00 0.00 25.00 1.10
8. Final value paid by Consumer 146.41 145.20 152.97 146.65

Comparison (Trade of Service)
Sr. No. Particular Intra-State Inter-State
Present GST Present GST
1. Initial Value 110.00 120.00 110.00 120.00
2. Centre’s Tax 11.00 11.00 12.10 12.10
3. State (X)’s Tax 0.00 11.00 0.00 0.00
4. State (Y)’s Tax - - 0.00 12.10
5. State’s Total 0.00 11.00 0.00 12.10
6. Total Tax paid to Govt. 11.00 22.00 12.10 24.20
7. Non-Vatable Tax borne by
Business
0.00 0.00 0.00 0.00
8. Final value paid by Consumer 121.00 132.00 133.10 145.20

PART II
27

ROAD TO GST –
MILESTONES
28

Road to GST- Milestones
 2006, announcement of the intent to introduce GST by 01.04.2010
 November 2009 – First Discussion Paper (FDP) released by EC on which Comments
were provided by Government of India.
 June 2010- Three sub-working Groups constituted by Government of India on:
 Business Process related issues.
 Drafting of Central GST and model State GST legislations.
 Basic design of IT systems required for GST in general and IGST in particular.
29

Road TO GST- Milestones contd.
 March 2011 - Constitution (115th Amendment) Bill introduced in Parliament
 November 2012 – Committee on GST Design constituted by EC
 February 2013 - Three Committees constituted by EC
o Dual Control, Thresholds and Exemptions in GST regime
o RNRs for SGST & CGST and Place of Supply Rules
o IGST and GST on Imports
 March 2013- GSTN Incorporated as Section 25 Company
30

Road TO GST- Milestones contd.
 June 2013- Committee constituted by EC to draft model GST Law
 August 2013- Standing Committee on Finance submitted Report
 April 2014- Committee constituted by EC to examine business processes under GST
 December 2014- 122nd Constitutional Amendment bill introduced in Parliament
31

Features of Constitutional Amendment Bill
• 122nd Amendment Bill introduced in LS on 19.12.2014
• Key Features
o Concurrent jurisdiction for levy of GST by the Centre and the States –proposed Article
246A
o Authority for Centre to levy & collection of IGST on supplies in the course of inter-State
trade or commerce including imports – proposed Article 269A
o Authority for Centre to levy non-vatable Additional Tax – to be retained by originating
State
o GST defined as any tax on supply of goods or services or both other than on alcohol for
human consumption – proposed Article 366(12A)
33

Features of Constitutional Amendment Bill contd.
 Key Features contd.
o Goods includes all materials, commodities & articles – Article 366 (12)
o Services means anything other than goods – proposed Article 366 (26A)
o Goods and Services Tax Council (GSTC) - proposed Article 279A
 To be constituted by the President within 60 days from the coming into force of the
Constitutional Amendments
 Consists of Union FM & Union MOS (Rev)
 Consists of all State Ministers of Finance
 Quorum is 50% of total members
 Decisions by majority of 75% of weighted votes of members present & voting
 1/3rd weighted votes for Centre & 2/3rd for all States together
34

Features of Constitutional Amendment Bill contd.
 Key Features contd.
 Council to make recommendations on
 Taxes, etc. to be subsumed in GST
 Exemptions & thresholds
 GST rates
 Band of GST rates
 Model GST Law & procedures
 Special provisions for special category States
 Date from which GST would be levied on petroleum products
 Council to determine the procedure in performance of its functions
 Council to decide modalities for dispute resolution arising out of its recommendations
o Changes in entries in List – I & II
o Compensation for loss of revenue to States for five years
35

PART III
36

Integrated Goods And Service Tax
(IGST)
37

Integrated Goods and Service Tax (IGST)
 Basic Fundamental to discuss in IGST:
o GST in India envisaged on destination/consumption principle.
o Place of supply to determine the place where the supply of goods/services will take place
and to determine whether supplies are inter state or intra state.
o In sub-national taxation, determining the place of supply is important as tax revenue
accrues to the State where the supply occur or deemed to occur.
o IGST model envisage levy of IGST by the Centre on all transactions during inter state
taxable supplies.
o Tax revenues accrues to the destination/importing State based on Place of Supply Rules.

Integrated Goods and Service Tax (IGST) contd.
 IGST model permits cross-utilization of credit of IGST, CGST & SGST for paying IGST unlike
intra-State supply where the CGST/SGST credit can be utilized only for paying CGST/SGST
respectively.
 IGST credit can be utilized for payment of IGST, CGST and SGST in sequence by Importing
dealer for supplies made by him.
 IGST Model envisages that the Centre will levy tax at a rate approximately equal to
CGST+SGST rate on inter-State supply of goods & services.
 It would basically meet the objective of providing seamless credit chain to taxpayer
located across States.

Integrated Goods and Service Tax (IGST) contd.
 IGST model obviates the need for refunds to exporting dealers as well as the need for
every State to settle account with every other State
 The Exporting State will transfer to the Centre the credit of SGST used for payment of IGST
 The Centre will transfer to the importing State the credit of IGST used for payment of SGST
 Thus Central Government will act as a clearing house and transfer the funds across the
States

Illustration for IGST Model
 Mr. A (based in Maharashtra) supplied Goods to Mr. B (based in Gujarat) and paid 17%
IGST. Mr. A has Input credit of CGST 8% and SGST 8% from local Purchases. So he paid only
1% to Central Government Account i.e. in IGST code of that product. Maharashtra will
transfer to Centre 8% SGST used for payment of IGST.
 Mr. B (based in Gujarat) who had purchased those goods supplied the same locally to Mr. C
(based in Gujarat) and liable to SGST 10% and CGST 8%. He will utilize Credit of IGST of
17% first for CGST (8%) and balance for SGST (9%) and will pay 1% in cash. Gujarat
Government where goods are consumed is entitled to get destination based tax i.e. SGST.
Centre will transfer 9% IGST Credit used for payment of SGST to Gujarat. In this example,
few important points may be noted:

Illustration for IGST Model
• Maharashtra Government in this transaction will not get any tax since it is inter state
supply from Maharashtra to Gujarat
• Gujarat Government will get 10% SGST for Import of Goods (9% from central Government
and 1 % paid as cash by Mr. B)
• Central Government will get 9% IGST on inter-state supply of goods to Gujarat (8% from
Maharashtra Government and 1% paid as Cash by Mr. A)
• Important to note is that while Central Government got 9% as tax, at the same time Mr. B
(based in Gujarat) has been allowed full credit of IGST paid by Mr. A (based in
Maharashtra)

For Taxpayers
 Maintenance of uninterrupted ITC chain on inter-State transactions for dealers
located across States
 No refund claim for suppliers in exporting State, as ITC is used up while paying the
Tax
 No substantial blockage of funds for the inter- State supplier or buyer
 No cascading as full ITC of IGST paid by supplier allowed to buyer
 Model handles ‘Business to Business’ as well as ‘Business to Consumer’ transactions
43
ADVANTAGES OF IGST MODEL

ADVANTAGES OF IGST MODEL
For Tax Administrations
 Upfront tax payments by suppliers in exporting State
 No refund claims on account of inter-state supplies
 Tax gets transferred to Importing State in accordance with Destination principle
 Self monitoring model
 Result in improved compliance levels
 Effective fund settlement mechanism between the Centre and the States
44

Key Enablers for IGST
 Uniform e-Registration
 Common e-Return for CGST, SGST & IGST
 Common periodicity of Returns for a class of dealers
 Uniform cut-off date for filing of Returns
 System based validations/consistency checks on the ITC availed, tax refunds
 Effective fund settlement mechanism between the Centre and the States

Role of Dealers in GST Framework
 Every dealer has to submit one single GST return consisting information about all
his purchases/sales at Invoice level along with line item.
 Accordingly necessary records, registers are to be maintained and consolidation
for return will require automation and standard procedures.

Role of Central/State Government in GST framework
 Central Government to act as clearing house for accounts settlement across States.
 Handling disputes between states over jurisdictional and enforcement issues.
 Develop and maintain GSTN with best of facilities for uninterrupted flow of credit, less
litigation and facility to register, file return and in future inbuilt other features like
refund, scrutiny of returns.
 Draft model Legislation for CGST, IGST and SGST which will act as a Boundary wall,
binding in nature both on Centre and States to legislate their respective GST Acts.
 Affix rate of SGST, within the parameters of band recommended by GST council.
 Formulate mechanism for reconciliation of tax payments.
 Develop systems for scrutiny of returns and record of assesses for GST.
 Establish dispute resolution mechanism for issues relating to levy of GST.

PART IV
48

Salient features of Proposed Place of Supply Rules
 Place of Supply Rules should be framed keeping in view the following principles:
o Rules for B2B Supplies and B2C supplies should be different.
o Place of supply for B2B supplies should normally be the location of recipient of goods or
services and not where services is actually performed.
o This is required to maintain smooth flow of credit. To illustrate, Mr. A (located in
Rajasthan) participates in exhibition organized by Mr. B (located in Delhi).
Normally place of supply will be Delhi and Mr. A located in Rajasthan will not be
eligible for input tax credit.

Salient features of Proposed Place of Supply Rules contd.
 Rules for B2B supplies should be such so that input tax credit should be available to
recipient.
 Place of Supply Rules should be guided by the principles that tax revenue at
intermediate stage does not accrue to any tax administration as they are merely wash
transactions.
 Place of Supply Rules should be guided by the principles that tax revenue accrues only
when the goods/services are consumed by the final consumer.
 Place of Supply Rules should take care of the situation where intangibles are ordered
from locations other than the locations where they are consumed.

Way Forward for Introduction of GST
 AMENDMENT BILL TO BE PASSED
o Procedure for passage of Constitutional Amendment Bill
 To be passed by 2/3rd majority in both Houses of Parliament
 To be ratified by at least 50% of the State Legislatures
 Assent by President of India
 Thereafter, GSTC to be constituted
 GSTC to recommend GST Law and procedure
 GST Law to be introduced in Parliament/ State legislatures
 GSTN (GST Network) a Section 25 Company formed to design automation of GST in
line with TINXYS/NSDL

Key Questions before introduction of GST
Key Design issues under Discussion –
 Extent of Dual Control
 Rate structure (based on RNR)
 Exempted Goods or Services
 Exemption threshold
 Composition threshold
 Exclusion Vs. Zero rating of certain goods in GST regime
 Role of Centre / States in inter-State Trade
 Place of Supply Rules for Goods and Services
 Mechanics of IGST model
 Account settlement between the Centre and the States under IGST model

Key Questions before introduction of GST
Key Business processes under Discussion –
 Multiple registration within one State
 Dispute settlement over taxable and enforcement jurisdiction
 Audit, enforcement, recovery etc.

Revenue Neutral Rates (RNR)
 Rate which will give at-least the same level of revenue, which the Centre and
States are presently earning from Indirect taxes.
 How to achieve this rate -- require analysis of GDP, Consumer
Consumptions, exclusion and desired level of collection of Centre/state.
 We may derive the same by way of an illustration.

Illustration
 Country A desires to collect Rs. 3000 Crores of revenue from Indirect Taxes. The total
Consumer Expenditure on Purchases/services is Rs. 30000 Crores.
 Now in case taxes are applicable on every product then a uniform rate of 10% will
suffice the collection.
 In case certain products say foods, petroleum, tobacco, electricity are excluded from
tax regime and the consumer expenditure on them is Rs. 10000 Crores, then to achieve
the same level of taxes, rate need to be 15%.

Exclusion Vs. Zero Rated
 Exclusion while immune a product/Services from levy of taxes on the other hand
disallow the benefit of CENVAT/Input Credit of taxes paid which in turn inflate the cost
of production/services. Buyer of these products/services while paying this additional
cost could not claim any benefit of taxes so paid and hidden in the cost. To illustrate
Electricity company while paying 5% excise duty on coal has no option but to add the
same into cost of generation while claiming electricity charges from a builder who in
turn may have claimed credit if such duty is charged as input taxes from him.
 Zero rated good on the other hand enable the producer/service provider to claim the
refund of input taxes paid from department, hence will not form part of cost of
production/services.

International Perspective in GST
 Rates and Policy issues of VAT
 Emerging Issues
o Bit Coins/Coupons
o B2C
o Online Supply of Services
o E Commerce Transactions
o Dispute Settlement between States
o Exclusions
o RNR

Impact Areas for Businesses
 Pricing, Costing, Margins
 Supply-chain management
 Change in IT systems
 Treatment of tax incentives
 Treatment of excluded sectors
 Transaction issues
 Tax compliance

Role of Professionals
 Tracking GST development
 Review of draft legislation and impact analysis
 Industry Consultation for improvement in business process
 Review of final legislation and impact analysis
 Implementation assistance
 Post implementation support
 Tax Planning
 Record Keeping
 Departmental Audit

CA Atul Kumar Gupta
Email: atul@servicetax.net , atulservicetax@gmail.com
Mobile: 09810103611
62

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